Do Commodity Futures Prices Affect Monetary Policy: Empirical Analysis from China

Abstract

This paper uses the cointegration correlated theory model method and the monthly data from May 2004 to October 2023 to study the role and impact of the Chinese futures market price index (total index and various sub-indices of energy, chemicals, non-ferrous metals, grains, oilseeds and soft commodities) on Chinese monetary policy variables (reserve ratio, net money supply of open market, interbank lending rate, USD/RMB exchange rate, money supply M0, M1 and M2). It is found that the total commodity futures price index and the non-ferrous index have a strong guiding effect on the monetary policy variables except for the net money supply of open market operations. All other sub-indices have a strong impact on individual monetary policy variables, except for oilseeds, and generally speaking, the total commodity price index and the non-ferrous commodity price index have a greater impact on monetary policy. The cointegration test and error correction model show that in the long and short term, various indices of futures prices have different quantitative effects on monetary policy variables, and the shock response function curve reflects that each index of futures price has different delayed effects on monetary policy variables, indicating that the overall impact of futures price index on monetary policy variables is greater, but the role of different subindices is different. Therefore, taking a variety of measures to balance the development of the futures market and better enhance the impact of the futures price index on monetary policy will help improve the implementation effect of monetary policy and better promote the development of macroeconomy.